Best Buy Q4 FY26 Earnings Call Transcript

Best Buy Co. (NASDAQ:BBY) reported fourth-quarter financial results before the market open on Tuesday. The transcript from the company’s fourth-quarter earnings call has been provided below.

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Operator

Welcome to Best Buy’s fourth quarter fiscal 26 earnings conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session at that time. If you have a question, you will need to press Star one on your phone. If you choose to be taken out of the question queue, please press Star one again. As a reminder, this call is being recorded for playback and will be available by approximately 1:00pm Eastern Time today. If you need assistance on the call at any time, please press Star zero and an operator will assist you. I will now turn the conference call over to Molly O’Brien, Head of Investor Relations.

Mollie O’Brien (Head of Investor Relations)

Thank you and good morning everyone. Joining me on the call today are Corie Barry, our CEO, Matt Bilunas, our Chief Financial and Strategy Officer and Jason Bonfig, our Chief Customer, Product and Fulfillment Officer. During the call today we will be discussing both Generally Accepted Accounting Principles (GAAP) and non Generally Accepted Accounting Principles (GAAP) financial measures. A reconciliation of these non Generally Accepted Accounting Principles (GAAP) financial measures to the most directly comparable Generally Accepted Accounting Principles (GAAP) financial measures and an explanation of why these non Generally Accepted Accounting Principles (GAAP) financial measures are useful can be found in this morning’s earnings release which is available on our website investors.bestbuy.com some of the statements we will make today are considered forward looking within the meaning of the Private Securities Litigation Reform act of 1995. These statements may address the financial condition, business initiatives, growth plans, investments and expected performance of the Company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward looking statements. Please refer to the Company’s current earnings release and Our most recent Form 10-K and subsequent Form 10-Qs for more information on these risks and uncertainties. The Company undertakes no obligation to update or revise any forward looking statements to reflect events or circumstances that may arise after the date of this call. And now I will turn the call over to Corey

Corie Barry (Chief Executive Officer)

Good morning, everyone and thank you for joining us today. We are reporting better than expected profitability for the fourth quarter on revenue of $13.8 billion. We delivered an adjusted operating income rate of 5% and adjusted earnings per share of $2.61, both of which are slightly up to last year. Our fourth quarter comparable sales were down 0.8% versus last year within our guidance range for the quarter. Our data sources show our market share was at least flat, pointing to slightly softer consumer demand for our industry during the holiday quarter. Our holiday customer demand patterns were also different than modeled. Despite sales event timing that was very similar to last year’s, we saw softer than expected sales in November and the beginning of December. We then experienced strong sales in the last two weeks of December and the start of January and sales were negatively impacted by weather induced store closures during the last week of the quarter. We were prepared for a promotional holiday and the environment was even a bit more promotional than we factored heading into the quarter. I’m proud of how our team strategically pivoted throughout the quarter in terms of marketing, promotionality and labor. From a product category perspective, we delivered our eighth consecutive quarter of positive comparable sales in computing driven by laptops, desktops and accessories. In mobile phones, we delivered our fourth consecutive quarter of growth driven by our expanded partnerships and in store operating model improvements with large carriers. We grew our gaming category revenue but at a much slower rate than the previous two quarters. As expected, we also saw strong growth in newer and emerging categories like augmented reality glasses, 3D printers, collectibles and toys, health rings and PC gaming handhelds. These positive growth categories were offset by declines in home theater and appliances. We are pleased with the progress we have made in our advertising and marketplace initiatives and both delivered positive contributions to gross profit rate in the quarter. We are also pleased with our customer experience metrics. Our relationship Net Promoter Score (NPS) was up materially year over year and the highest it has been in 11 consecutive quarters. We delivered significant year over year gains across all five of our most important attributes including helpful, empathetic, meeting tech needs like no other company can, value and ease. As we exited the year, we saw continued five star customer satisfaction gains in associate availability, product availability and store appearance for our online customers. We reached our fastest ever fulfillment speeds for a fourth quarter with 70% of online purchases fulfilled within two days. As I step back and look at the full year, I am proud of what we have accomplished. First, we returned to positive comps and stabilized our share position while navigating a complex and often evolving tariff environment. We successfully launched and scaled our US Digital Marketplace, onboarding more vendors than originally expected and drastically increasing our available SKU count for our customers. We grew Best Buy ads while almost doubling the number of ad partners compared to the prior year. We were able to both make the necessary investments in our marketplace and ads initiatives and expand our enterprise operating margin through a combination of disciplined expense management and efficiency optimization efforts. We leveraged the use of new technology in many areas to elevate customer experience and drive efficiency pleased with the investments we have made in customer facing labor over the past couple of years. We plan to keep our labor flat as a percentage of revenue, balancing the growth in dedicated specialized labor with more flexible and multipurpose resources. We expect the level of vendor provided labor hours to grow again this year after going 20% in the second half of last year. Together with our partners, we provide in person expert CE experiences for our customers that are unmatched in today’s retail world. As you would expect, we are also focused on our digital experience. We have already begun to activate on ways to bring our products to life through AI platforms this year. First, we’re partnering with OpenAI to give our customers a new way to explore and discover our products. We’re among the early retailers to make it easier for our product catalog to be displayed on ChatGPT, creating a more seamless path to product inspiration. We’re also an early ads partner and exploring more opportunities to enhance our shopping experience with OpenAI. In addition, we support Google on its new Universal Commerce Protocol, a cross industry standard that helps create a more seamless agentix shopping journey across the web. Using this Universal Commerce Protocol, we’re working with Google to build a new way for customers to purchase directly in AI mode in Google Search and the Gemini app. We are also the first retail partner to launch a native checkout integration with Uizard, an AI powered commerce platform. As agentic commerce matures, we want to serve our customers in new ways both on and off platforms. That includes evolving BestBuy.com to be more agentic friendly and ensuring our site is ready for AI agents to browse and discover on behalf of our customers. Other fiscal 27 online priorities include strengthening customer recognition and personalization, increasing app adoption and engagement, enhancing our new invite only capability and driving online conversion for categories like major appliances and TVs. Now I will discuss our services offerings which have long been a key differentiator for Best Buy. To sustain our leadership, A priority for us this year is to reassess our Geek Squad® services by simplifying our portfolio while at the same time making our services accessible to more customers. The good news is we’re making progress in simplifying our range of offerings with different price points to create customer choice. We are also planning to move beyond break fix and product installation services to dive into experiential solutions that cater to a variety of evolving customer needs. Whether it is a simple product upgrade or a full premium home installation, we will be there for our customers with speed, expertise and convenience. We’re continuing to prioritize our renowned Geek Squad® agent support in home, in store and virtually at the same time we’re enhancing our digital and AI experiences. This dual approach allows customers to choose how they want to receive service, whether it’s through direct interaction with an agent or more autonomous digital solutions, empowering customers to get the support they need on their own terms. Our services are also instrumental to the growth of our Best Buy business arm. Here we focus on business segments like education, hospitality, builders, healthcare and corporate enterprises. Product sales are concentrated in computing, home theater and major appliances and often paired with services such as field installation and end to end product support services like device lifecycle management. Our Best Buy business team generated more than $1.1 billion in revenue in fiscal 26 and we expect to generate a mid single digit sales growth rate again in fiscal 27. Now I’d like to provide an update on our Best Buy Marketplace. First, we have been very pleased with the outcome and performance. Our customers are responding favorably too as sales ramped through through the back half and represented approximately $300 million in domestic GMV in the fourth quarter. Furthermore, our five star ratings for third party purchase experiences are consistent with that of first party purchases. This outcome affirms that the team adopted the appropriate design principles to deliver a seamless customer experience. Regardless of whether the product is 1p or 3p and customer return rates for Marketplace items continue to be lower than our 1p return rates. These customers are taking advantage of the convenient return to store option for more than 80% of product returns. Top unit categories in fourth quarter included mobile phone accessories, computer accessories, movies, and small kitchen appliances, illustrating momentum and opportunity in what have traditionally been lower share categories for Best Buy. As a result, Marketplace is driving unit market share growth. While we are still early in our journey, our 3P seller community remains highly motivated and excited by the initial performance. To date, we have enlisted over 1100 sellers on Best Buy Marketplace and over 90% of our sellers with an open storefront are experiencing sales in any given week. I would add that our store employees are equipped with the right tools to help customers get what they want, even if we don’t carry it ourselves and are contributing to the marketplace GMV Moving to Best Buy ads in fiscal 26, our gross advertising collections were just over $900 million. This is up more than 7% versus last year. Today, these collections show up mostly as an offset to our cost of goods sold with a small amount flowing through revenue. In fiscal 27, we anticipate growth of approximately 10%. By the end of fiscal 26, we had 750 advertising partners, nearly doubling the count from last year Most of this growth stemmed from Marketplace third party partners following our August launch. Additionally, our first party partners are investing more with an average annual investment up 16% year over year. Our on site inventory m

Matt Bilunas (Chief Financial Officer)

Good morning. Let me start with our fourth quarter performance. Compared to the expectations we shared last quarter, Enterprise comparable sales declined 0.8% and were on the lower end of our guidance range. Despite the softer sales, our adjusted operating income rate of 5% was better than planned and included slightly favorable rates for both gross profit and SGA. I will now talk about our fourth quarter results versus last year. Enterprise revenue of $13.8 billion decreased 1% versus last year. Our adjusted operating income rate increased 10 basis points compared to last year and our adjusted diluted earnings per share increased 1% to $2.61 by month. Our enterprise comparable sales were down approximately 3% in November before improving to 0.2% in December and up 0.4% in January. In our domestic segment, revenue decreased 1.1% to $12.6 billion driven by a comparable sales decline of 0.8%. From a category standpoint, the largest contributors to comparable sales decline were home theater and appliances, which were partially offset by growth in computing and mobile phones. Our Online revenue of $4.9 billion decreased 2.3% on a comparable basis and represented 39% of our domestic revenue. Our online comparable sales growth includes the net commission revenue earned from our third party marketplace sellers. From an organic standpoint, the blended average sales price of our products was approximately flat to last year. International revenue of $1.2 billion increased 0.5% versus last year. The revenue increase was primarily driven by the favorable impact of foreign exchange rates which was partially offset by a comparable sales decline of 1.3%. Our domestic gross profit rate of 20.9% was flat to last year. During the quarter, our gross profit rate benefited from increased collections from Best Buy ads and growth in marketplace commissions. These items were offset by lower product margin rates which were primarily driven by an unfavorable sales mix and increased promotions. Our international gross profit rate decreased 90 basis points to 20.5%. The lower gross profit rate was primarily due to lower product margin rates. Moving to SGA where our domestic adjusted SGA decreased $36 million. This decrease was primarily driven by reduced compensation expenses which included incentive compensation and lower Best Buy health expenses. These items were partially offset by increased expenses related to marketplace and Best Buy ads, including higher advertising and technology expenses. During fiscal 26, total capital expenditures of $704 million were essentially flat to fiscal 25. During fiscal 26, we returned $1.1 billion to shareholders through share repurchases and dividends. We remain committed to being a premium dividend payer and this morning announced that we are increasing our quarterly dividend to $0.96 per share, which is a 1% increase. This increase represents the 13th straight year we have raised our regular quarterly dividend. Moving on to our full year fiscal 2017 financial guidance, which is the revenue in the range of 41.2 to $42.1 billion, comparable sales of down 1% to up 1%, an adjusted operating income rate of approximately 4.3% to 4.4%, an adjusted effective income tax rate of approximately 25.5%, adjusted diluted earnings per share of $6.3 to $6.6, capital expenditures of approximately $750 million and lastly, we expect to spend approximately $300 million on share repurchases. From a phasing standpoint, the repurchases are planned to occur primarily during the fourth quarter, resulting in our weighted average share count remaining near the levels at fiscal 26 year end. Next, I will cover some of the key working assumptions that support our guidance. Earlier, Corey provided context on our fiscal 27 top line assumptions, so let me spend more time on the profitability outlook. We expect our gross profit rate to improve by approximately 30 basis points compared to the prior year due to growth from Best Buy ads in our US Marketplace. Now moving to adjusted SGA expectations we which include the following puts and takes SGA’s plan to increase in support of ads and marketplace which includes advertising technology and employee compensation expense. We expect higher incentive compensation as we reset our performance targets for the next year with the high end of our guidance. Assuming an increase of $30 million compared to fiscal 26, store payroll expenses are expected to increase at the high end of our revenue guidance with minimal impacts. From a rate perspective, partially offsetting the previous items are expected lower Best Buy health expenses. Lastly, the low end of our guidance reflects our plans to further reduce our variable expenses including incentive compensation to align with sales trends. Before I close, let me share a couple of comments specific to the first quarter. We expect our first quarter comparable sales growth to be approximately 1%. From a monthly phasing perspective, comparable sales were down approximately 1% in February and expected to increase in March and April. We expect our first quarter adjusted operating income rate to be approximately 3.9% with gross profit rate expansion being the primary driver of the 10 basis points of year over year improvement. I will now turn the call over to the operator for questions.

Operator

At this time, if you would like to ask a question, press Star then a number one on your telephone keypad. To withdraw your question, simply press Star one. Again. We will pause for just a moment to compile the Q and a roster. Your first question comes from the line of Kate McShane with Goldman Sachs. Please go ahead.

Goldman Sachs Analyst

Hi, this is Grace on for Kate. Thank you so much for taking your question. We were wondering in the case that product prices do increase due to the higher memory pricing, we were wondering what that could look like and what do margins look like across the different computing categories like good, better and best? Thank you.

Matt Bilunas (Chief Financial Officer)

So overall for next year our guide for gross profit is about 30 basis points increase year over year which is primarily driven by both ADS business and marketplace growth. The remaining parts of the gross profit rate are pretty neutral, even inclusive of the product margin rate. So for the year product margin rates are going to be assumed to be pretty flat year over year. So within that context There could be some categories, some pressure on margins because of memory costs, but overall we would expect to be able to navigate, based on the list of things that we talked about in our prepared remarks, the ability to manage some of that pressure that might exist overall pretty pretty neutral impact the product margin rates in total. But there could be unique areas within computing that might have some impact.

Operator

Your next question comes from the line of Scott Ciccarelli with Truist Securities. Please go ahead.

Truist Securities Analyst

Good morning guys. Hope you’re well. Two questions. First, can you talk about what you saw in the fourth quarter in big screen TV sales, especially as a big competitor, really aggressive in that category from what we could tell. And then secondly, I guess a bit more open ended, how should we think about the growth opportunities around Meta and Google Glasses? And any more details on how you’re partnering with those vendors in that specific category? Thanks

Jason Bonfig (Chief Customer, Product and Fulfillment Officer)

From a TV perspective, both revenue and units were below expectations in Q4. From an industry perspective, we were actually happy with the way that we showed up from a positioning perspective, but there just was a little bit more softness than expected. But we are excited and optimistic as we move into next year and there is a new technology trend, as Corey mentioned, as we get into the middle of the year with RGB technology across all of our major suppliers, we do think that’s going to drive a lot of demand. It’s going to drive a lot of interest in our store. It is really something that you need to see in person and we’ll be there with our vendors to make sure that we put that on display in the best way possible. From a Meta perspective and just AI Glasses in general, it is a is a significant growth trend for us. It does show up in gaming. When we talk about it, we do think we have the best relationship with vendor partners and our relationship with Meta is phenomenal. The way that they show up in our stores and the way we’ve been able to bring their new products to market and then even locations that are even more of a showcase where the way that we were able to represent and partner with them on the display product and bring that to market. There are other things happening from an AI Glasses perspective. There’s a lot of noise at CES and we expect that there’ll be even more products not only from partners that we already do, but probably also from new partners as this continues to be a growth category for us.

Corie Barry (Chief Executive Officer)

Scott, strategically, just to build on that a bit, I think the idea of AI for the consumer is kind of a long Tail space where we will have a unique advantage. Some of that we’ve already been leaning into which is think about like a enhancing existing technology that’s like Copilot plus. It’s AI in computing, it’s AI in phones. It’s our ability to explain that and bring it to market. Some of it is what Jason’s hitting on what you asked about that lifestyle tech example. And there’ll be lots of different ways we’ll see that interactive gaming, we’ll see it in glasses. Then you’re going to see some, probably some reinvigorated categories. Things like smart home where it’s actually just going to get a lot smarter. There’s a lot more use cases that you’re going to see for consumers. And then ultimately I think there’s the question of what I would call always on AI support. So what is right now OpenAI connected TVs talking about AirPods with cameras. Kind of this idea of how do all these platforms start to show up actually in hardware and our experiences and our goal is, and this is our sweet spot as this technology comes to life. We want to be that key partner for our vendors to really help explain.

Operator

Your next question comes from the line of Michael Lasser with UBS Financial. Please go ahead.

UBS Analyst

Good morning. Thank you so much for taking my question. Do you think you’ve appropriately embedded enough margin flexibility in your guidance in order to compete effectively in in the year ahead? It seems like the industry just gets a little bit more competitive each day and 30 basis points of gross margin expansion may not be sufficient in order to drive the top line. Thank you.

Matt Bilunas (Chief Financial Officer)

Yeah, I mean I think we’ll obviously navigate the year as we know more. Michael, I think a couple points. Our space is always very competitive. If you think about just FY26, it was already a very multi promotional year and on top of a high promotional year, we had a sales mix impact the margin rates as well. I think as you think about next year, we’re certainly not expecting to not be promotional. Probably a similar level of promotionality, but maybe in some quarters a little less sales mix pressure potentially so which helps mitigate some of the potential product margin rates that might come with memory cost adjustments. So we’ll clearly navigate as best we can. But I think right now we feel like we’ve appropriately built in the product grade pressure that we need to be competitive.

Corie Barry (Chief Executive Officer)

Two things I would add, Michael. We’ve made it very clear that we want to position ourselves to make sure we are driving particularly unit share. And I can See that happening for us as we come out of Q4. So you can imagine we’re trying to build enough flexibility to be able to do that. Matt also hit on it in his prepared remarks. I did as well. This is where ads and marketplace are also very helpful to our model, especially on the gross profit profit side of things. Because this is, this is the fuel we’re looking for to continue to be able to reinvest in the base business. So you have to remember it’s all those things put together that shows up in that gross profit expectation.

UBS Analyst

Understood, thank you very much. And it seems like your message this morning is, Listen, we expect 2026 to be a bit more challenging year because of these memory shortage challenges, but you’ll navigate through it appropriately. Can you anchor the market to a longer term expectation? Is 2026 just a transition year and the company can get back to positive same store sales growth at the midpoint of whatever you would expect in the year after that. And what, what would be the key driver of that? Because presumably these memory shortages are going to persist for an extended period of time and the industry landscape is not going to get any easier. Thank you very much.

Corie Barry (Chief Executive Officer)

If we take a step back, this is an industry that, let’s go pre Covid was, let’s call it flattish to up single digits pretty consistently. And what that relied on was also a pretty consistent kind of replacement behavior by consumers and a consistent innovation arm from our vendor partners. And as long as it was kind of the innovation and the replacement that really sustained a pretty decent growth trajectory for the industry. And then our job was to continue to maintain our position, if not grow our share position in an industry. Obviously there’s been lots of puts and takes over the last six years, lots of pull forward. Now what we’re getting back into is an interesting situation. You called out some of that kind of mixed macro that we had also called out, whether it’s the ongoing tariff situation or whether it’s memory. On the flip side though, we also are starting to see more innovation and more, I’m going to call it replacement behaviors, especially in computing and even mobile, than we’ve seen in some time. So I think for our fiscal 27 calendar 26, what we’re trying to do is put all of that together and say for the coming year, here’s what we see and you’re right, some of that may persist. But the good news is there’s also some of that innovation, some of that replacement behavior that is an interesting countervailing wind to some of the mixed macro impacts that we talked about. So I still believe over time, over the longer term, this is a great industry where, trust me, the world’s biggest companies are innovating to bring incredible new products to market. Especially with AI coming to life the way that it is. I think it’s just how do you navigate some of the challenges we see in front of us? And the last thing that I would say is this is a team that has proven they’re quite good at, at navigating in partnership with the vendors. If you just think about the year we went through. So I have a lot of confidence in our ability to do that.

Matt Bilunas (Chief Financial Officer)

Clearly, at the high end of our guide, we are factoring some level of memory cost impacting units, but we also potentially get the benefit on the ASP side too. So that the ASP could potentially mitigate some of the unit declines on the higher end of any sort of outcome. And the low end, obviously it could be a situation where you have more constraints just broadly within the computing industry that it could bring the, bring it to the bottom of the guide. I’d also say during the, during the last couple years, we’ve seen that we have price points across computing in all of our areas. So the extent that there are cost increases, what we’ve learned is that people come in with a budget, they look to buy a certain product. We always have something in a range of products that the customer wants. And so we’re seeing some of that mitigate the potential impact of cost increases. And we’ve just proven that over the last couple years with the tariff situation.

UBS Analyst

Thank you very much and good luck.

Operator

Your next question comes from the line of Brian Nagel with Oppenheimer. Please go ahead.

Oppenheimer Analyst

Hi, good morning. Thank you for taking my questions. So my first question, I guess shorter term in nature, just as we look at fiscal Q1, I guess I want to make sure I heard this correctly. So you said you were comps were down 1 in February, but you’re planning for a plus one for the full fiscal quarter. I guess what underpins that expected acceleration here through the balance of the quarter?

Matt Bilunas (Chief Financial Officer)

Yeah. Thank you. We are expecting the full year, the full quarter to be about a 1% comp for Q1 in the quarter. We expect to see continued growth in computing, engagement and mobile phones. We also expect to see improved trends within the TV based on the vendor pads that we’ve added, the specialty labor. And just making sure we’re priced in the right spot from a phasing perspective. Like I said, we are seeing February down approximately 1%. There are a few unique things that impact the monthly phasing. First, we are, as Corey talked about in prepared remarks, we are expecting the benefit of tax refund spending. More of that is weighted towards the month of March and April for us than it is February. Secondly, there are actually a couple of more material phone launches, timing shift from the beginning of February to the beginning of March. Those actually have a pretty significant impact to a certain single month’s comp. So that phasing accounts for a lot of that start to start to the quarter and we expect other more important launches to kind of hit in the back half of the quarter as well. So that that really kind of accounts for the majority of the phasing between February, March and April.

Oppenheimer Analyst

That’s very helpful.

Corie Barry (Chief Executive Officer)

I appreciate it. Okay then my second question you mentioned tariffs is in response to Michael’s questions previously, but I guess I just want to hit harder on tariffs. And where are we right now as far as, you know, dealing with tariffs mitigation efforts? I mean, how, how does anything with tariffs and what Best Buy is doing to deal with them affect or impact the guidance you laid out for now for the current fiscal year? Yeah, Brian, thanks for the question. I’m just going to start with, and I always start this way, but I think it’s important. Our number one focus is always our customers and meeting their budgets wherever they are. And our approach has then been to deliver the right assortments to match the customer needs and the budgets while we partner with our vendors to make sure that there’s a good outcome for all of us. And I have to say I’m really proud of the way the team has been navigating. I think right now where we are. The recent Supreme Court ruling led to a lower effective tariff rate for our products at this point. And at this point we haven’t modeled major impacts to our year based on that. I think there’s still a lot of moving pieces and there’s still a lot to be figured out. But I think what’s important here, and you can see it even on our results, we gave a lot of the reasons why our industry is a bit different and things like this is a really highly promotional category. It’s relatively low frequency, so it’s not like you’re comparing prices week on week on week. It’s an always changing assortment with different components and features. Innovation tends to drive price points up, while older price points come kind of decline. These are global supply chains, so vendors are making decisions across the entire globe. And we have this immense depth of product at all the different price points. So whatever your budget is, when you come in, we’re going to have something for you. And so while there’s been lots of moving pieces at the total company level, we aren’t seeing. Our ASP has actually been relatively flat as what we saw in Q4. And so I think that what that leans into is customers are able to find what matches their brand budget. And we continue to work with our vendor partners to do that. So we know they’ll continue to be some changes in the space. But I think the team has done a really nice job working with our vendor partners to make sure we show up for our customers.

Oppenheimer Analyst

I appreciate it. Thank you for all the detail.

Corie Barry (Chief Executive Officer)

You bet. Thank you.

Operator

Your next question comes from the line of Steven Zacconi with Citigroup. Please go ahead.

Citigroup Analyst

Good morning. Thanks very much for taking my questions. First one I wanted to ask was just how should we think about the same store sales cadence for the year? Would we expect every quarter to kind of be within the range? And then you gave the commentary on the memory impact, which is very helpful. Is there a cadence to be mindful of when it comes to ASPs and unit volumes, just given the disruption?

Matt Bilunas (Chief Financial Officer)

Yeah, I think broadly, if I look at the year, we’re clearly talking about a 1% comp for Q1. We clearly haven’t guided the rest of the quarters. But if you think about where maybe the more opportunity for us on a comp is probably in Q1 and Q4. Some of our stronger quarters last year were in Q2 and Q3. So that might be a space where you might see a little bit of, a little bit lower comp than maybe Q1 and Q4 as we’re, as we’re looking at it today, I think in terms of the memory, I think we already started to see some, some costs, some prices go up because of the memory in some small parts of categories. So it has begun a little bit. I would imagine that continues to kind of roll through as we move into the future, into the, into the upcoming quarters. Hard to say exactly at what pace does it change ASPs, but we are seeing signs that some spots are actually starting to increase.

Citigroup Analyst

Okay, thanks. The follow up I had was you’ve given a lot of detail on the marketplace and Best Buy ads. Thanks for that. As we think about the opportunity for contribution to EBIT margin in next year and the out year, can this be a material driver that the business can get back closer to a 5% operating margin in time.

Matt Bilunas (Chief Financial Officer)

Yeah, I mean, I think as we think about past this year, clearly we believe strongly in these two initiatives. And we were talking about how this year is still an investment year for both of those two different areas, but they are scaling pretty materially and they are beginning to. You’re seeing signs of it adding to the gross profit rate. It’s just taking a bit of SGA investment this last year and then FY27 to kind of build into different new areas to scale it. As we look beyond this year, we do expect both of them to not only add operating dollars to the bottom line, but also help us generate a better rate as we look forward now. Exactly how much and when we get to that type of OI rate in total, can’t really say at this point, but we do believe it will be a great contributor to our ability to expand our operating rate in the future. And, you know, and we will keep stay focused out just on scaling those two things in the right, responsible way and then continue to invest as we see fit to unlock that growth in the future years.

Citigroup Analyst

Okay, thanks for the detail.

Operator

Your next question comes from the line of Steve Forbes with Guggenheim. Please go ahead.

Guggenheim Analyst

Good morning, Corey. Matt, maybe just following up on Michael’s comment from before. You mentioned average sales price flat, I think, in 2025. And then you also talked about configuration changes in conjunction with the vendors to meet certain price points. And so I don’t know if maybe you can just, you know, baseline the outlook for average sales price for the company as a whole in 2026. And if you can maybe just talk about computing in particular as we marry together, all these elasticity concerns.

Matt Bilunas (Chief Financial Officer)

Don’t I wish I had the perfect organics forecast for you. To be clear, ASBs were flat in Q4. They actually were kind of down a bit and some of the other quarters up a bit. But that was a Q4 quote in terms of what we see going forward. We’re not going to guide based on organics because again, the goal here is have as many different price point opportunities available for the customer. That’s true across our assortment, whether it’s televisions. Back to the earlier question where we continue to play really strongly in large screen, whether that is computing, whether that’s mobile phones. The goal here is to have as many price points as possible and then have customers opt into what they want. So it’s not even as easy as. All right, if all the skews go Up X percent. That’s probably not how it’s going to work because the customer might come in with a budget and they’re not going to look at a certain sku. They’re just going to look at how do I fulfill that budget. And so what we’re focused on is less about exactly how much does the ASP perfect. What we’re focused on is how do we work with vendor partners to make sure we have as many different price point items available with the right and best configurations possible so people can opt into what’s most important to them.

Matt Bilunas (Chief Financial Officer)

Yeah, so thanks for the question. There’s a couple things. Our vendors continue to make more investments in Best Buy. That’s in physical experiences. In our store there was a long list of vendors that continue to contribute and want to grow that presence. There’s also been a significant uptick in the amount of vendor labor that’s supported and that doesn’t even include the training that they do throughout the year with our labor. In total, from a promotionality perspective, we’re not seeing a dramatic change there. I think there is one adjustment that you see naturally happen and you are probably seeing it in computing first, which is price increases are not the first thing that happens. The first, the first thing that happens is promotions are pulled back a little bit. And that’s not that there’s less of an impact or less of a funding of promotions, that is that there is less promotions and in computing you’ve actually seen less pure cost increases and more of a general slight pullback in promotions from computing vendors, which is the first thing they’ll do under this memory situation. The second thing is that the cost changes will come through. That’s really the only area where we’ve seen any difference. And it’s not a difference in level of support to the Best Buy is actually an industry difference in level of promotional aggressiveness in a particular category. Just to be clear that the 20% reference was 20% growth in labor last in the second part of last year. We would expect vendor provided labor to grow this year as well. But that 20% reference was specific to the half of last year.

Guggenheim Analyst

Appreciate that. Thank you. Thank you.

Operator

Your next question comes from the line of Simeon Gutman with Morgan Stanley. Please go ahead.

Morgan Stanley Analyst

Hey, good morning, guys. I’m going to ask two questions in one. So first, the positive comp trends in first quarter. Can you talk about the complexion? Is there any difference from the way the year ended? And then if you can merge that into thinking about the comp outlook for fiscal 27 in totality. And then Matt, I know you mentioned promotionality when we saw you in December, you talked about reserving the right to be more promotional if needed be. So can you talk about how that tone progressed through Q4 and then the position you enter 2020 or fiscal 27 with?

Matt Bilunas (Chief Financial Officer)

Thank you. Sure. Yeah. So as we enter Q1, we do expect Q1 to see growth in areas they’re pretty consistent to what we had been seeing. Places like computing, gaming. We haven’t quite lapped the Switch launched in Q2 of last year. Mobile phones would expect it to be a growth area for us. As we look at here in the Q1, we do expect improved TV trends. That would be something that we would carry through the remainder of the year as well. And then like I said, we have some unique timing shifts between the months here in Q1, between some of the mobile phone launches and other product launches. So those carry, as you get into the latter part of the year, continue to expect computing to grow at the high end of that guide. At the low end, it would assume a level of constraints that we can’t foresee at the moment. But that’s supported by a continued end of Support for Windows 10 and improved use cases for AI and just a general replacement cycle. Continued need. The growth in mobile phones will continue to be fueled this year through the new carrier labor models and system enhancements that we implemented last year. Interesting. As you look into this this year too, there are a lot of newer emerging categories that we’ve Talked about like AI, glasses, 3D printers, collectibles, toys, health rings. Those are all small individually, but collectively they’re about. They’re even more. They’re about a half a point of comp or more of our of our growth next year. They all add up to something that’s very nice and consistent, support our business and like I said, improve TV trends as the year progresses. Like Corey mentioned earlier, we haven’t contemplated any changes related to the tariff news that we’ve had, but I think again, building on continued momentum. The other thing I’d notice, gaming should expect to see gaming growth in Q1 we do expect GTA in the back half of the year to help us in the back half. We will be lapping that switch launch in the mid part of the year. So you’d see a little bit of a difference in sequence growth there. For the gaming category as it relates to promotionality, we’ve been pretty clear and pretty consistent. Customers have been drawn to key value events. And what we have also been clear about is we will lean into those places in partnership with our vendors and make sure that we are competitive. And so I think to Matt’s point, and when you heard him last, we know that these key moments, whether it’s holiday, whether it’s fourth of July, whether it’s super bowl, those are the moments where customers are really in the marketplace and we are going to lean into those. But we have lots of tools also in our arsenal to lean into those. We’ve done a nice job really working hard on our more strategically personalized promotional levers. As we can see signals now that we use to try to re engage customers back into the brand. Those have been very effective. And so I think what we’re trying to do is make sure that when the customer is in the marketplace for good value, we are there and we are competitive. And we are using other tools like trade in and refurbished products and outlets and financing to make sure that we have the very best values there for them. And it seems to be resonating.

Morgan Stanley Analyst

Thank you.

Operator

Your next question comes from the line of Zachary Fatum with Wells Fargo. Please go ahead.

Wells Fargo Analyst

Good morning.

Matt Bilunas (Chief Financial Officer)

So with the SGA moving parts around, vendor labor as well as investments, could you update us on your leverage point in 2027 and then as the investment cadence dials back in 2028, how does that impact your leverage point and incremental margins going forward? Yeah, I mean, I think what you’ve seen us be able to do as sales, broadly speaking, move from positive to negative, we’ve been able to adjust our SGA in a responsible way to kind of mitigate the impact oira, to continue to lever on a relatively big fixed cost base that we have. And so you see us in those situations responsibly. Now, we’ll always measure and look at customer experience to make sure we’re not doing anything that’s damaging. But we’ll scale that. First thing that scales back is incentive compensation. As you move down on the scale of sales performance and OI performance, you remove a level of incentive compensation within the year. And that is certainly represented in our guide. So at the bottom end of our guide we probably remove about $100 million of incentive compensation at the -1 sales guide. We also will responsibly move down in terms of store labor and marketing and other variable exposure expenses to make sure that we’re putting in the right amount of SGA to support the sales outlook that we see. So those are a couple of examples. And then you see other changes to supply chain costs. If.com comes up and down, it can impact your parcel costs and bad debt expense. So there are things that just naturally flex down and then there are things that you just responsibly move down because you’re trying to match what you see in terms of demand. And you’ve seen that for us be able to manage our sales when sales do go down in a pretty responsible way and to deliver an operating income outcome that is actually as good in many cases as what it would have been at a higher end of sales.

Wells Fargo Analyst

Got it.

And then on the appliance category, you’ve had some challenges there. Curious. Any thoughts on the game plan for fiscal 27 to return to share gain and how should we think about the glide path towards returning to positive comps?

Corie Barry (Chief Executive Officer)

Thank you for the question. Appliances continues to be a tough environment. Obviously home sales and remodels are down so the vast majority of the market continues to be duress and replacement of something that has broken. It also is been very promotional, not necessarily promotional. That’s led to an increase in business. So we’re watching very good carefully with our vendor partners around what promotions are actually doing to drive the business in total because the market is shifting to more duress and has been duress for a very high percentage. We are focused on a couple of things. Investments from our vendor partners in more specialty specific labor to appliances, which we think will be helpful and investing in that experience, investing in the ability for customers to take an appliance with them if they’d like to take do that, which is something that customers are showing more interest in doing in particular stores. And then we’re really really focused on delivery speed because it is around something broke, I need to have it replaced in a relatively short amount of time and making sure we have that core set of SKUs that customers are able to get as quickly as possible and we’re able to actually get it to them as fast if not faster than what our competitors. And those are really the areas that the teams are focused on as we move into next year year just based on where the market is and then when it flips obviously we will be Very focused on the other part of the market, which is more experience driven, more bundle, more, you know, upgrading. But we’ll make sure that we serve both, both those segments of customers and be very, very focused in the first part of the year on that speed component. Got it.

Wells Fargo Analyst

Thank you. Thank you.

Operator

Your next question comes from the line of Jonathan Matuszewski. But Jeffreys, please go ahead.

Jefferies Analyst

Great. Good morning, Corey. Matt, two questions. First one, you know you’re in top to top meetings with vendors frequently. Do your supplier conversations reveal plans to slow the pace of innovation and product launches in 26, given the memory chip shortage distraction. And my second question, there’s conjecture that recent computing and smartphone category performance could be aided by a pull forward in demand with consumer awareness of potentially higher prices ahead. Are you seeing any evidence that would support a thesis of pull forward? Thank you.

Jason Bonfig (Chief Customer, Product and Fulfillment Officer)

Great questions on the first one. We’re seeing nothing from our vendor partners that would slow down innovation. In fact, when you have something like we have in front of us with memory, there’s actually a large push to try to find other things that are very valuable from a feature and benefit perspective to customers that will actually continue to drive the growth in the individual category. So looking at actually other, other parts of technology and computing, it could be size of screen, quality of screen, some of the AI features, but really other things that will drive interest into the category and make up for some of the pressure that we’re going to see from a memory perspective in total. So there is absolutely nothing that would indicate that. And then as far as the pull forward, where possible, we will pull in inventory. But from a demand perspective, we’ve actually seen continued stability and growth. We talked about computing, we’ve grown for the last eight quarters and in mobile phones, we’ve grown for the last four quarters. There’s not anything that’s indicating that customers, customers are actually trying to pull forward. It’s actually just continued demand in two categories that we’re actually seeing customers want to upgrade.

Corie Barry (Chief Executive Officer)

There’s one more thing that I would want to add to that before closing the call, and that is the concept of rising memory or component costs or shortages is not something that’s new to the industry. It is something that we have dealt with in peaks many times over the last 25 years. And so to reinforce some of what Jason said, our vendor partners are really excellent at pivoting and thinking differently. And by the way, there’s no vendor partner out there that doesn’t want to also drive consumer demand and continue to make sure their products are front and leading. And so this isn’t a brand new space. It’s just, you know, one more, I think, set of features that we need to work through with our vendor partners. And with that, I think that was our last question. We thank you for joining us this morning and we look forward to updating you on our results and our progress us on our next call in May. Thanks, everyone.

Operator

Ladies and gentlemen, this concludes today’s call. Thank you all for joining. You may now disconnect.

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